Everything Old is New Again: Enduring Lessons From the Very First Book About the Stock Market
More than 300 years later, "Confusion of Confusions" remains a must-read
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I have belatedly come to an important realization. Namely, that I learn so much more about how to be a successful investor in today’s markets by reading dusty old books published decades (or even centuries) ago than by scanning the financial headlines on CNBC or plowing through a stack-full of popular new releases.
After all, the richest lessons and truths have been around forever — and aren’t likely to change any time soon.
Case in point: I recently picked up what most consider to be the very first book ever written about stock-trading and markets — Confusion of Confusions — a lively account of the Amsterdam Stock Exchange by Joseph de la Vega in 1688.
And, despite its very old age, this book totally holds up today. It continues to speak to us, generation after generation, with timeless passages that could just as easily refer to Wall Street in the twenty-first-century as it does Amsterdam in the seventeenth.
The author even lambastes his subject as “this gambling hell” — which sounds downright Munger-esque in its fire-and-brimstone imagery.
If nothing else, I hope that today’s discussion of Confusion of Confusions inspires all of us to crack open an old book every once in a while. Rather than angst-ing over the new release section on Amazon, let Father Time be your curator by reading the classics. Of any genre or topic.
The books that survive and remain lodged in the public consciousness long after publication are the ones that have truly stood the test of time. And, in almost every case, there’s a very good reason for that longevity.
Below, I’ve pulled out some of my favorite passages from Confusion of Confusions — ones with much to teach us about emotional control, clear thinking, and approaching all investment decisions with a long-term mindset.
“This enigmatic business which is at once the fairest and most deceitful in Europe, the noblest and the most infamous in the world, the finest and the most vulgar on earth. It is the quintessence of academic learning and a paragon of fraudulence; it is a touchstone for the intelligent and a tombstone for the audacious, a treasury of usefulness and a source of disaster.”
“The bulls are like the giraffe which is scared by nothing … They love everything, they praise everything, they exaggerate everything.”
“The bears, on the contrary, are completely ruled by fear, trepidation, and nervousness. Rabbits become elephants, brawls in a tavern become rebellions, [and] faint shadows appear to them as signs of chaos.”
Has there ever been a more poetic description of the money game — and the mercurial moods of Mr. Market — than this?
When Joseph de la Vega wrote these words in 1688, the Amsterdam Stock Exchange was more like the Dutch East India Company Stock Exchange. Essentially, speculators placed bets on how well the venerable old company’s exploratory efforts in Southeast Asia would fare — and how laden with riches and spices its ships might be when they eventually turned towards home.
Our investing universe is a lot larger today, but the important things — like human nature, the seductive powers of greed and envy, and our gambling instinct — remain much the same as ever.
Back in de la Vega’s day, “investors” were already scrounging for every advantage. Honest or ill-gained, it made little difference to the denizens of “this gambling hell”. They shorted stocks, traded options, and often spread wild (and untrue) gossip in hopes of moving the share price by a point or two.
In other words, it was Wall Street — just a few centuries ahead of its time.
Amidst this chaotic backdrop of avarice and deception, de la Vega strikes a cautious — yet undeniably optimistic — note. Rather than scaring off would-be investors with tales of bankruptcy and irrevocable loss, he instead encourages them to walk the narrow path of stewardship with simple truths and lessons that echo through the ages.
Ones that we could all stand to learn — or re-learn — today…
Think for yourself. “As there are so many people who cannot wait to follow the prevailing trend of opinion, I am not surprised that a small group becomes an army. [Most people] think only of doing what the others do and of following their examples.”
Master your emotions. “Emotion has greater power than the warnings of proverbs; gullibility and seduction cannot in any way be prevented.”
You can ignore the money game — but the money game won’t ignore you. “‘Look after that which concerns you’ is the advice of a prudent man. People efficient in business follow this counsel, because they believe that nobody will care better for their advantage than they themselves, and that nobody will better grab hold of fortune than they themselves can…”
Reminiscent of what Lauren Templeton’s father once told her: “You’re always gonna have to play [the money game] — no matter what your profession — so learn how to play it well.” Amen.
Volatility is the price of admission. “The variations of the price [of the shares] do not [necessarily] follow the course of the river Moelin which runs toward the East for one fortnight and then toward the West for another. Neither is there a similarity to the Persian well in which the water rose for thirty years and fell for a similar period. The fall of prices need not have a limit, and there are also unlimited possibilities for the rise.”
Have the courage of your convictions. “Everybody who did not join in the jubilation was regarded as a fool, and everyone who sold shares was looked at as a tenacious and deadly enemy of his own interests, each sale being called foolishness, madness, and a crime.”
It’s a bull market. “Always speculate for a rise from natural inclination and on a fall only on occasion, because experience has shown that usually the bulls are victorious and the bears lose out.”
Don’t outsmart yourself. “[Speculators] are very clever in inventing reasons for a rise in the price of the shares on occasions when there is a declining tendency, or for a fall in the midst of a boom.”
You can give someone a stock tip, but you can’t give them your conviction. And they’ll probably end up blaming you for it, anyway. “The first principle in [speculation]: Never give anyone the advice to buy or sell shares, because, where perspicacity is weakened, the most benevolent piece of advice can turn out badly.”
Expectations are priced in. “The expectation of an event creates a much deeper impression upon the exchange than the event itself. When large dividends or rich imports are expected, shares will rise in price; but if the expectation becomes a reality, the shares often fall; for the joy over the favorable development and the jubilation over a lucky chance have abated in the meantime.”
Do not overextend yourself. “If the speculator undertakes more than his [financial] strength allows and scorns Seneca’s advice that the table should not be larger than the stomach, it is inevitable that he fall over with the burden and that the world slips from his shoulders — for he is no Atlas.”
And perhaps his simplest and most valuable observation that frequent trading leads to losses